What Bankruptcy CAN’T Do: Intents and Purposes, Part Four

Intentionally Running up the Bill…

A Tale of Two Bankruptcies

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

Previous blogs were about  taxes, traffic fines, speeding tickets and their ilk, student loans and Intentional Debt – that is, lying to get a loan – either by preparing a false financial statement or otherwise.

Sometimes people get a loan or cash advance or purchase a luxury item just before filing bankruptcy. These kinds of debt are presumed to be dischargeable – you intentionally bought a luxury item or got a cash advance or loan with no intention of paying for it. I talk about that here.

I finished that blog saying that the non-dischargeability of those kinds of debts is presumed and a debtor can rebut or disprove that presumption.

Tell them your story …

***

Here are two examples. Let’s say both cases file in January. One was a married couple (I will call them the Smiths), the other a divorced man (Jones).

Although there were three people filing bankruptcy – I will refer to them as only two entities – Smith and Jones. Three people, two cases, two names.

In the middle of Smith’s bankruptcy I received a letter from one of his credit card creditors. I was expecting the call because I noticed the recent charges on his credit card.

He charged over $3,000.00 on this card during a vacation to London. Then he filed bankruptcy in January. (Once upon a time the limit for presumption of dischargeability was $500.00 in charges within 30 days of filing and $1,000.00 within 90 days of filing). The credit card company told me they were planning on filing a motion to make their debt non-dischargeable.

BUT, Smith had an intervening circumstance. True, he charged up his London vacation in November, but when he was fired from his job in December. I proved to the credit card company that 1) his vacation has nothing to do with his dismissal (he was not running out the clock) and 2) more importantly, I could show that had he not been fired, he would have paid the credit card. They did not file their motion to make the debt non-dischargeable. Remember that the loser paying the attorney fees in these issues … so there was no “we have nothing to lose by filing” from the credit card company.

In the middle of the Jones bankruptcy, I got a letter from one of his finance company loans. They were going to file a Motion to have their debt ruled non-dischargeable, too. He got a loan of $5,000.00 from July of the year before – seventeen MONTHS before filing bankruptcy.

How on earth were they going to accomplish that? Because he had not made a single payment on that debt in seventeen-plus months. Not. One.

He was still at the same job as when he got the loan. He was at the same pay rate. He did not marry, divorce, have a child, get sick, lose a family member or was hurt or injured at work or elsewhere. All he did was incur more debt. Also his demeanor was a bit … well, let’s just say the conversations about this issue contained a lot of “who cares” and “so what”s.

Nothing happened between the time he got the loan and the time he filed bankruptcy.

The odds were good that he had no intention of paying that loan – even though the loan was far past the time allowed by law. Remember one of the often-repeated phrases in this blog series: A good local bankruptcy attorney will have the experience and knowledge of your specific district to advise you how your bankruptcy judge views and reviews these issues.

There was very little chance the judge would rule in his favor – especially with Jones’ apparent lack of concern. Add to that he would likely have to pay for the loan company’s attorney fees (as well as mine). We agreed to allow the loan to survive the bankruptcy. He didn’t care about that too much, either.

The debt was too far in the past for me to know about it. Perhaps I could have delayed his bankruptcy filing – give him time to make a few payments on the debt.

Of course, that would have been obvious, too. “When did you see your attorney?” “December 17th.” “When did you make your first payment on this debt?” “December 18th.” A judge would see through that. But if the payments were made for six months or more … if he could have waited that long or longer; the debt might have discharged.

***

Intent is the key. Jones had no intent of running up the credit card without paying. On the other hand, Smith had no intent to pay HIS debt.

THAT is the difference.

***

More “Intentional Debts” next time …

Copyright 2016 Michael Curry

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

Advertisements

What Bankruptcy CAN’T Do: Intents and Purposes, Part Three

Running up the Bill

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about  taxes, traffic fines, speeding tickets and their ilk, student loans and Intentional Debt – that is, lying to get a loan – either by preparing a false financial statement or otherwise.

11 USC 523(a)(2) is the part of the Bankruptcy Code that lists what debts are discharged or not discharged. A debt is presumed to be non-dischargeable in bankruptcy if it is a consumer debt that you owe to a single creditor for more than $500.00 used to by luxury goods or services incurred within ninety days of filing bankruptcy.

Suppose you buy a couch for three thousand dollars. The next week you file bankruptcy. If you used an in-house company card, the debt will likely be secured and you will either have to keep paying for it or let it go back.

If you used your credit card, you might face the kind of non-dischargeability action I am talking about. It was a consumer debt (as opposed to a business debt) for $500.00 or more made within 90 days of filing for bankruptcy.

The only thing that might save you is the “luxury goods” part of the law. A luxury good is defined in this part of the bankruptcy code as something that is NOT “… reasonably necessary for the support or maintenance of the debtor or a dependent …”

What the judge will have to determine is whether a three thousand dollar couch is reasonably necessary.

Good luck with that. As a debtor’s attorney, even I would have a hard time believing that a $3,000.00 couch is reasonable and necessary.  I wouldn’t even CONSIDER buying a $3,000.00 couch unless there was $2,000 in cash stuffed in the cushions.

“But it was for my adult daughter. She’s handicapped and has lived with me all her life. The couch is specially designed for her – we had to get a prescription from her doctor to get it. It helps her back and legs. Without it she is in excruciating pain…”

That changes everything. See?

And let’s hope you included that $3,000.00 couch on your Schedules, either as a household belonging or a medical aid. As mentioned in my previous blog; even if the debt is ruled dischargeable if you did not list the couch itself you could be in trouble with the Trustee!

***

Also, debt is presumed to be non-dischargeable in bankruptcy if it is a cash advance (through credit cards or extensions of credit from a bank or loan company) that totals more than $750.00 within seventy days of filing bankruptcy.

This is pretty obvious: you get a cash advance on a credit card, or a loan from a finance company, of a thousand dollars and then the next week you file bankruptcy. It will survive the bankruptcy – no matter if you used it to pay bills or even your bankruptcy fees.

There is a section of the bankruptcy petition where you list payments of $600.00 or more during the 90 days before you file bankruptcy. As stated above, you had best list the payments you made with that cash advance – or at least list the cash you are still holding – on your schedules to avoid trouble with the Trustee.

***

Note that the creditor has to bring an action with the bankruptcy court – the dischargeability is not automatic. If the creditor does not file a Motion to Determine Dischargeability in time – the debt WILL discharge. But that is the risk you have to take when filing a bankruptcy so soon after incurring a loan.

***

If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.

***

But before it comes to that, is there a solution?

They are “presumed” to be non-dischargeable. This means the judge will take into consideration why you bought the item/got the cash and what happened in between. The couch for the daughter is a good example.

Twenty years ago I represented a widow whose husband in his final days racked up a huge credit card bill from Sears. The attorney for Sears asked her about what was bought – a tiller, a lawnmower, yard equipment, etc. He had a list of the purchases and quizzed her (nicely) on it. She said her husband likely gave the things away to friends and neighbors. Did she have any of these items at home? No. Was she aware of the purchases? No. She said her husband was having memory and other age-related mental problems in the year before he died (when these purchases were made). When the questioning was over and she left the courtroom the attorney for Sears (who was a very kind gentleman in any regard) caught my eye, shook his head and waved his hand. He did not pursue the dischargeability action.

The phrase to use is “intervening circumstance”.  I have two true examples I will give you next time.

Copyright 2016 Michael Curry

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

What Bankruptcy CAN’T Do: Intents and Purposes, Part Two

Damn Lies!

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about  taxes, traffic fines, speeding tickets and their ilk, and student loans.

In my previous blog, I talked about some Intentional Debt.

Here is another example of Intentional Debt: 11 USC 523(a)(2) is the part of the Bankruptcy Code that controls if a debt is discharged or not discharged. A debt is not discharged in bankruptcy if it is a debt “… for money, property, services …” (or “… an extension, renewal, or refinancing …” of a loan) if you got the loan because you used “… a statement in writing … that is materially false; (that was about your) … financial condition; on which the creditor … reasonably relied; and that the debtor (made the statement in writing) … with intent to deceive.

This time we are still talking about lying, but lying on paper specifically about your financial condition.

Wait. Wouldn’t that be included in the “false pretenses, a false representation, or actual fraud” you talked about last time? Yes, but that part of 11 USC 523(a)(2) specifically says that does NOT count to a writing about your financial condition.

Why not?

I don’t know. Someone, somewhere, must have been able to worm their way around the “false pretenses, a false representation, or actual fraud” because it was something in writing about their financial condition. So the legislature added this extra part.

In this case, I am talking about writing on an application (or anything in writing) that you make $40,000.00 per year when you make $20,000.00 per year. When you put in writing that you own your car when you still have a loan on it.

It’s the Nixon problem. It’s not the fact that you did it (which is bad enough) but the fact that you lied about it – on paper.

And this specific part of the code deals with anything in writing about your financial condition. When you checked that you were NOT convicted of any crime when you were; that doesn’t count – even if you intentionally lied (and that is not something you tend to forget). Of course, the creditor can still “get” you on the “false pretenses, a false representation, or actual fraud” part.

***

            Or can they? Remember I said that it is difficult for a creditor to win these kinds of actions. If only because a creditor – usually a company in the business of lending money – has ways to check and double-check what you say.

Did they ask for copies of your paycheck stubs? How did they verify your income? Did they NOT verify your income?

That was kind of … well … stupid wasn’t it?

A common defense as to not listing all your debt is to ask if the company got a credit report before approving the loan. Does the credit report show the unlisted credit card? Why did they approve the loan in the first place when they SAW there was a credit card not listed on the loan application?

This is especially helpful when they say “I wouldn’t have given her that loan had I known she owed that much on her Discover Card!”

And they will ALWAYS say that.

***

            If, in the course of the lawsuit, it seems the judge is siding with the debtor – and a good attorney can tell most of the time – the attorney may pursue how the debtor got the loan? Did they get a letter saying they were pre-approved? Well, if they were pro-approved it hardly matters WHAT they put on their application, doesn’t it? J

***

            The Court will use reasonableness and common sense with these issues. Forgetting one or two other loans on an application? That’s probably okay. Forgetting about tens of thousands of dollars’ worth of debt? That is NOT reasonable.

You forgot your name was on your brother’s car? That’s probably okay. Forgetting that you DON’T owe on the car you are currently driving? That is not reasonable.

Stating you make $35,000.00 per year when you make $40,000.00? That’s probably okay. But if you were out of work when you made the loan? That is not reasonable. Did the question ask about potential future income? We might be back to reasonable again. This is the kind of thing your attorney will ask the creditor – do you ask about his current situation? Did you follow up on the questions about potential income?

***

                “Intent to deceive”. That is the key. Cackling with glee over your nefarious deed. Twirling your mustache. Nyah-ah-ah.

***

If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.

***

More “Intentional Debts” next time …

Copyright 2016 Michael Curry

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

What Bankruptcy CAN’T Do: Intents and Purposes Part One

 

Lies!

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about  taxes, traffic fines, speeding tickets and their ilk, and student loans.

Today I’d like to discuss what I call Intentional Debt. It’s not a legal phrase and you won’t find it in a law dictionary or on other legal websites or blogs.

I made it up.

Intentional Debts are the kinds of debts incurred that you should not have incurred – and knew you should not have. You were being naughty when you incurred the debt. Shame shame!

***

Here is the law that states that some intentional acts are non-dischargeable. The law that says so is 11 USC 523(a)(2). I will reprint it here without all the legalese:

A debt is not discharged in bankruptcy if it is “… for money, property, services, or an extension, renewal, or refinancing of credit … obtained by … false pretenses, a false representation, or actual fraud, other than a statement … (of) … the debtor’s or an insider’s financial condition.”

In other words: you lied.

About anything. Whether it was on the loan application or over the phone or in person. If you intentionally lied to get the loan, that debt can be ruled non-dischargeable and you will have to continue to pay it even though you filed for bankruptcy.

If you said you were working and you were not. Or that you were NOT working and you WERE (this applies to overpayment of unemployment, for example), if you said you were current on your rent or mortgage and you were not. If you said you owned your car and you did not. If you said you have no children living with you and you have two. You get the idea.

Remember we are talking “intentional” …

“You said you co-owned a car with your ex-boyfriend but he traded that car in the month before!”

“He did?”

***

Let’s pause a minute and let reality sink in. It’s hard to get a ruling against you with this kind of action. Because it’s hard to prove intent.

“You didn’t list the fact that you still owe on a credit card!” Maybe when you filled in the loan application you honestly forgot about that. You DID list the car, the OTHER credit card, the computer loan … maybe it was an honest mistake. Maybe the application only had room for a few loans and you didn’t have space to put it in. Maybe the loan was going to be used to pay OFF that credit card and so why bother list it? (Hey, that line of logic made sense to you at the time – and it still makes sense!).

“You didn’t list all your bank accounts on the application!” Was it a Christmas club and the application was filled out the spring (and you forgot about the ten dollars in it)? Was it a joint account that you forgot about?

The creditors will comb through your bankruptcy paperwork for things like this.

Fortunately things like this fall through. “I got the bank account after I got your loan but before the bankruptcy. Same with the credit card. Same with the car loan.”

If the creditor is smart they will ask your bankruptcy attorneys about these discrepancies before bringing any court action. Your attorney will ask you about the facts (when did you open the account? When did you buy the car or get the credit card?) and relay them to the attorney for the creditor. The creditor can then decide whether it is worth filing an action in the bankruptcy court.

Do you see the inference here? As long as the creditor can prove you were NOT twirling your moustache and snarling, “nyah-ah-ah!” after getting the loan, you are probably safe.

The creditor still has a right to try the case before the bankruptcy judge. You will still have to defend yourself or hire an attorney to help you defend yourself.

Keep that in mind: do you want to pay an attorney a thousand dollars to defend an eight hundred dollar loan?

Check with a local bankruptcy attorney anyway if this happens. It may be you have a solid defense. And in some cases the losing side pays the winner’s attorneys fees. Since the creditor who is filing the challenge to the bankruptcy is usually a business, collecting the attorney’s fees will be easier than if it were an individual.

***

Read through those examples above and remember that your bankruptcy trustee will also be listening. You didn’t list a bank account on your loan? Was it also missing from the bankruptcy schedules? You might not only be in trouble in this proceeding to have the loan ruled non-dischargeable, but NOW the trustee might file an action for not telling the truth on your bankruptcy schedules.

Calm down. If the missing bank account (or missing vehicle or other asset) is not enough to make the debt in question non-dischargeable, it is probably inconsequential enough to escape the trustee’s wrath, too. To be safe, amend the schedules to add the bank account or vehicle or asset anyway…

***

One last example:

“You forged your grandmother’s name as a codebtor so you could get the loan?” Um, yeah. If that is true; I think they got you. You’d better own up and admit that debt will survive the bankruptcy …

***

The bottom line is that if you were cackling with glee over “getting away” with what you did – getting the loan – that loan may survive the bankruptcy if the creditor (the person or company you owe the money to) challenges your bankruptcy.

 

A good local bankruptcy attorney will have the experience and knowledge of your district to advise you how the bankruptcy judge of that district views and reviews these factors.

***

If the creditor wins and the debt is ruled non-dischargeable, it will survive the Chapter 7 bankruptcy and you will have to resume paying it when the bankruptcy case is over. In a Chapter 13, any amount not paid by the disbursing Trustee will survive, including unpaid interest (if the original loan allowed for interest). In neither kind of bankruptcy will you have to pay on the debt during the bankruptcy.

***

More “Intentional Debts” next time …

Copyright 2016 Michael Curry

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

What Bankruptcy CAN’T Do …. Student Loans

Don

There are some debts that bankruptcy does not affect. You can file bankruptcy to help relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But some debts are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid

My previous blogs were about  taxes and traffic fines, speeding tickets and their ilk.

The prior two categories of debt are pretty black and white. Most of these debts do not discharge. Period. Taxes can discharge only under very specific criteria.

 

***

The discharge of student loans has a narrow strip of grey in it. It is one of the few debts listed as otherwise non-dischargeable in which the court has some discretion. The judge is allowed to judge…

***

 Section 523(a) of the bankruptcy code (Title 11) lists all of the debts that are not discharged in bankruptcy. In this book I do not want to get bogged down in quoting and citing the code with all its legalese. I want to make the list of non-dischargeable debt clear.

But in this case, since the “rule” about when a student loan is dischargeable is so grey … so ephemeral … I want you to read it.

523(a)(8): unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents … (a bankruptcy discharge does NOT discharge) … an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or … an obligation to repay funds received as an educational benegit, scholarship, or stipend; or … any other educational loan that is a qualified education loan …  incurred by a debtor who is an individual …

***

Over the years the pendulum swings to and fro as to what is included in a “student loan”. The loan itself? Of course. But what about tuition (fees and costs for admission and signing up for classes)? Once upon a time those debts were non-dischargeable, too. As of now the pendulum swung the other way – those kinds of debt ARE dischargeable.

As of this writing the pendulum has swung so far as to say a college cannot refuse transcript requests if you file on tuition. At one point a school could refuse transcripts.

Once upon a time the tab you had at the school book store was non-dischargeable. Or at the least the school could refuse your transcript request until you paid for that stick of gum.

Today, though, only the loan itself is non-dischargeable.

Today.

***

The phrase on which most debtors rely on discharging student loans is “… unless … (the survival – non-dischargeability – of the student loan) would cause an undue hardship…”

What is an undue hardship?  Most courts look at a person’s past, present and future to determine that. Have they tried their best to pay the loan? Does a review of their current finances allow for any room for a payment on the loan? And what does their future income and expenses look like?

Those are the criteria, usually. Some courts are stricter than others on this. Your local bankruptcy attorney will know if discharging student loans in your district is only just difficult or very very difficult. It’s not easy and it’s not meant to be easy. I am avoiding editorializing here – ask me personally – but I think it is fair to say the laws make it quite hard to discharge your student loans.

What do I mean?

If a Debtor is wearing a nice suit during the hearing, will that hurt his chances? A gold ring? If someone can afford a house payment does that mean they can afford their student loan?

That sort of thing.

A good local bankruptcy attorney will have the experience and knowledge of your district to advise you of the possibilities of student loan discharging in your district.

***

What about Chapter 13s? Even I have to admit that discharging student loans in a Chapter 13 is close to impossible.  If you can make a monthly payment of $100.00 (or more) for three-to-five years you can continue that payment on a student loan after discharge.

***

I’ll discuss more debts that are non-dischargeable next time.

Copyright 2016 Michael Curry

 

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

Incarceration cost recoupment dischargeable (for now)

WHAT BANKRUPTCY CAN’T DO

Traffic Fines, Speeding Tickets, DUI fines, Misdemeanor fines, etc.

Part Two: Additional

Here is a case from April of 2016 that ties into the topics I have blogged about recently: the dischargeability of debts owed to the government. This case is on appeal and it will be interesting to see how it turns out!

If the Debtor wins on appeal, this shows that attorneys need to review the laws from which these fees grow. I suspect these will be considered loopholes the various states will close quickly!

http://www.ncbrc.org/blog/2016/04/12/pay-to-stay-debt-dischargeable/

 

Pay-to-Stay Debt Dischargeable

Posted by NCBRC – April 12, 2016

A debt owed to the county under a pay-to-stay incarceration cost recoupment program was held to be dischargeable under section 523(a)(7). County of Dakota v. Milan, No. 15-3034 (March 1, 2016).

Jacob Jerome and Ashley Kaye Milan filed chapter 7 bankruptcy in which they listed, as an unsecured, non-priority debt, $3,600.00 owed to Dakota County incurred by Mr. Milan under the state pay-to-stay program for prison inmates. The program, Minn. Stat. § 641.12, subd.3, charges $25.00/day for incarceration expenses including room and board, medical expenses, and other miscellaneous costs. The stated purpose of the program is to permit the County to recoup some of the over $100.00/day cost of incarceration. Unlike court costs and fees which are administered by the district court collector, the pay-to-stay program is administered by the Dakota County Sheriff’s Office (DCSO). In the event the inmate fails to pay the fee the state authorizes “recapture” through garnishment of tax refunds, rent credits and lottery winnings.

The county filed an adversary complaint seeking declaratory judgment that the debt was not dischargeable and the parties filed cross-motions for summary judgment.

Section 523(a)(7) renders nondischargeable a debt that is: 1) a “fine, penalty, or forfeiture,” 2) payable to a governmental unit, and 3) “not compensation for actual pecuniary loss.” The controversy in this case revolved around the first and third prongs of this test. The court reviewed cases examining what types of costs are rendered nondischargeable under this section beginning with Kelly v. Robinson, 479 U.S. 36 (1986), which held that court-ordered victim restitution was not dischargeable. Likewise, other courts have found court-ordered restitution, court costs, and disgorgements all to be nondischargeable. The Milan court concluded: “The direction of these cases is clear: when a court imposes an obligation as part of a judicial order in a criminal case, the obligation is nondischargeable pursuant to § 523(a)(7).”

In this case the debt did not arise out of a court order, however, but out of a program established by the state and administered by the DCSO. The court, therefore, turned to the three-part test to determine whether the debt was nonetheless nondischargeable.

The first part of the test looks at the nature of the debt. The court rejected DCSO’s argument that the costs are “penal” because they are a result of Mr. Milan’s criminal conviction and incarceration. The court found no connection by statute or otherwise between the cost recoupment program and the criminal justice system that would justify calling the costs a “penalty.”  Nor could it be deemed penal as having been included in a court order or as part of the criminal process. As such, it did not meet the first requirement of the exception to discharge test set forth in section 523(a)(7).

The court went on to determine whether the third prong of the test applied and found that it did not. Addressing whether the costs imposed under the pay-to-stay program were compensation, the court again turned to the decision in Kelly where that Court found victim restitution was penal rather than compensatory. The Kelly Court was persuaded by the facts that the victim had no say in whether or how much restitution would be awarded, and that the government’s intention in providing for restitution was primarily penal.

The Milan court found no similar penal purpose behind the pay-to-stay program. The program was codified in the state’s civil administrative code rather than its criminal code. Its stated purpose was to help the county recoup some of the costs of incarceration and it was directly related to the county’s actual costs. The county’s control over the collection amount further distinguished it from Kelly where the victim had no similar input with respect to restitution. Moreover, in the event that a pay-to-stay debtor fails to pay the costs, the statute provides for ordinary civil collection methods to be used rather than recourse to the criminal justice system.

The court dismissed the adversary complaint as against Ashley Milan, and granted summary judgment in favor of Jacob Milan.

This case is currently on appeal to the BAP for the Eighth Circuit, No. 16-6012

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

 

WHAT BANKRUPTCY CAN’T DO: Traffic Fines, Speeding Tickets, DUI fines, Misdemeanor fines, etc. (part one)

fines

There are some debts that bankruptcy does not affect. You can file bankruptcy to help relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But some debts are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid

My previous blog I talked about taxes. Now I’ll tell you about fines and fees owed to the city, county, state and/or federal government.

The title lists the bulk of them: traffic fines, speeding tickets, any non-moving violation fines, and so on. It boils down to this: if you were ordered to pay in a criminal court, there is a VERY good chance it will survive bankruptcy.

The bankruptcy law says if the debt is “…a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss” it is non-dischargeable.

pay fine here

This of course includes fines and court costs. But what about related non-court costs?

***

If I still owe for my DUI counselling sessions required as part of my sentence? It may depend on your jurisdiction, but I’ll bet you a doughnut those will survive where you live. It was still ordered as part of the DUI sentencing “package”. If the county (or the counselling company) challenges the dischargeability of the debt before the bankruptcy court, odds are the judge will not let it discharge.  And not just alcohol counselling – any court-ordered counselling or valuation ordered by a criminal court and part of the Order counts here. This is part of their Police Powers.  If nothing else, paying these debts is part of your probation and NO bankruptcy judge is going to hold a county liable for violation of the stay as to probation requirements.

***

If I don’t mow my lawn and I get a citation from the city? It survives. It’s a penalty payable to a governmental unit; part of their police powers.

***

How about library fines? What if I never returned the first Harry Potter book back in 1997 and now owe $6,000.00 to my local library? Those CAN discharge – libraries are not governmental units. BUT they CAN refuse to give you a library card until the fine is paid. You cannot force them to take you as a patron.  (Also most libraries’ fines only go as high as the cost of replacing the book. HUGE library fines mostly only exist on situation comedies…).  Lost material charges? I believe that goes under pecuniary loss.

An “actual pecuniary loss” is money compensation such as overpayment of public aid, etc. THAT kind of debt is dischargeable, but there are ways the city/county/state/federal government can get their money back – I’ll explain that in another blog.

But check with your local bankruptcy attorney and local library system! Some libraries prosecute for lost books and back fines owed. This may change its eligibility for discharge. But even if the bankruptcy court declares the debt dischargeable – it is likely the library won’t let you check out any more books until paid.

***

How about back utilities? Those discharge because it is a pecuniary loss – money owed, not a fine. If you file bankruptcy on your utility bill the utility company – even municipal companies – cannot refuse you service. All they can do is charge you a new deposit.

And it must be a reasonable deposit. If we are both in line at the electric company they cannot charge you a $400.00 deposit and me a $1,500.00 deposit because I filed bankruptcy. They can charge us both a $1,500.00 deposit – they can be crooks as long as they are fair crooks to everyone.

I am talking about municipal utility companies – electric, water-sewer-trash, gas, etc. Cell phone, land lines, cable or satellite services are NOT considered utilities. Those companies CAN refuse you service even after discharge until the debt is paid.  The theory is (believe it or not), you can do without cable or a telephone. You can’t do without electricity.  And you can find another company to provide you with a cell phone or HBO. You do not HAVE to use the company filed in your bankruptcy.

In some areas of the country it is the same with gas (propane) and trash. If there are several trash pick-up services in a city or village – if you CAN go somewhere else to get (give?) your trash – they can refuse you service until paid in full, too. A good local bankruptcy attorney will have the experience and knowledge of your area to help advise what the local library, trash company or electric company will do when you list them in your bankruptcy.

What if you surrender your house and it has a HUD loan? Isn’t that a governmental unit? Yes, but this is the very definition of a “Pecuniary Loss”. If the government is going to be in the home loan business, then it must abide by the discharge injunction and write off the debt!

***

How are these debts affected by a Chapter 13 repayment plan? It depends on your jurisdiction. In some cases you can list the fines and these other debts and pay them over the life of the Plan. Other jurisdictions avoid these debts and allow you to pay them directly. This subjects you to “pay or appear” dates. If you have to show up in your county court to show that you did or did not pay the fine/fee/etc., bankruptcy filing will not prevent it. Talk to your local bankruptcy attorney.

***

Some clients do not have a problem with these kinds of debt surviving their bankruptcy. “I can handle the fines if you can get these credit cards off my back.” You may be asked to sign an acknowledgment saying that you understand that. Read through any acknowledgement, but don’t be too offended by it. The attorney is only protecting himself or herself – this is his or her proof that they DID discuss it with you.

I’ll discuss more debts that are non-dischargeable next time.

Copyright 2016 Michael Curry

***

About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi